Inorganics: European caustic soda price slides on increase supply, weak demand

30 April 2012 00:00  [Source: ICB]

Second-quarter contract price negotiations in the European caustic soda market concluded with decreases of €10-30/dry metric tonne (dmt) ($13.16-39.47/dmt), depending on source and region because of downstream weakness and more competitive offers from some local producers.

© Pam Broviak The start of Europe's construction season has boosted caustic soda production.

In northwest Europe, some producers achieved rollovers and even minor increases, but the bulk of contract deals settled at a decrease of €10-25/dmt. In southern Europe, most contract prices settled with a decrease of €20-30/dmt from March or from the first quarter, depending on whether contracts are settled on a monthly or quarterly basis.

The decreases took producers by surprise as they remained optimistic that supply limitations - driven by production constraints - would support their efforts to offset record ethylene contract prices and rising electricity and production costs, as well as improve margins in the wider chlor-alkali and vinyls markets.

SUPPLY OUTSTRIPS DEMAND

Producers Dow Chemical and INEOS ChlorVinyls announced a €40/dmt target increase for second-quarter contract prices, with immediate effect or as contracts allow, while other producers were hopeful that at least modest increases would be possible.

However, caustic soda production in Europe has outstripped domestic demand. The start of the European construction season has increased demand in the polyvinyl chloride (PVC) sector, thereby improving the netback value of feedstock chlorine and allowing for more caustic soda production. But real demand for caustic soda remains on the soft side, driven by weak downstream fundamentals.

Meanwhile, Middle East imports have increased caustic soda availability in the Mediterranean region, thereby reducing export opportunities for European producers into the key net importing markets of Turkey and Italy. These created a product surplus in the first quarter, pushing contract prices lower.

Some producers say demand for caustic soda remains satisfactory and product availability for spot and export is limited.

As of April 20, ICIS assessed Europe spot prices for liquid caustic soda at €295-310/dmt FOB (free on board) NWE (northwest Europe) compared to €304-319/dmt FOB NWE seen in February.

Other producers add that the price decreases are in fact the consequence of more competitive offers from European suppliers attempting to increase sales volumes and gain market share.

During March and April, the market has been largely balanced, as slow demand has been partially offset by supply constraints.

According to industry body Euro Chlor, caustic soda stocks for the region comprising the EU27, Norway and Switzerland were at 250,036 tonnes in March. Some producers say inventories below 300,000 tonnes is an indication of limited supply, but buyers say there is plenty of material available.

FUTURE PRICE UNCERTAIN

The outlook for the rest of 2012 is more uncertain. While there is no indication of a pick-up in domestic demand, production rates are expected to increase as producers come back from their annual maintenance and chlorine offtake rises with the start of the European PVC and construction season.

In the global market, consumption trends also suggest weakening conditions for the rest of the year, with several key producers of downstream alumina having announced production cutbacks across the globe and canceled caustic soda orders because of weak demand.

Growing global stocks could exert downward pressure on European prices as export trade suffers and imports increase. Thus far, while greater availability in the US market has limited export opportunities, Middle East producers have sold more caustic soda into the Mediterranean region because their traditional markets in Australia and Asia have shrunk.

• Additional reporting by Ken Fountain in Houston

By: Abache Abreu
+44 2086523214

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